DummySpots.com

Ever have so many projects in the air that you can’t seem to get any one of them out the door? That’s where I am right now.

I have multiple articles in progress right now with lots of words like Federal Reserve, deflation and *&%!! in them. I want to get them finished and published before the Fed lowers (25 basis points on September 18, quite possibly before, my name is Will and I approve this message).

Then I still have that Major Backtesting Project I undertook through the Spring and much of the Summer which changed the way I trade, and so far at least, it’s looking goood. I’ve got to get that article out.

And this past week, I’ve invented my own currency. No, really. It’s an idea I came up with in the late 90s and never implemented due to the divorce, the work, distractions, obligations, nymphomaniacs… just not enough time in a day.

The market, yeah. Motorcycles, yeah. Trading, good wine, cold beer, all passions. But the one that eclipses everything is my passion for parenting. I can objectively tell you that my daughters are the best, most wonderful kids in the world, and if you don’t believe me, just ask me.

Well, you parents know that you don’t want to deny them the things they want, but they’ve gotta do their part (the connection between freedom and responsibility, choices and consequences is my life’s mantra, particularly in regards to parenting). And when they refuse to do their part, you can’t just crack their heads open, no matter how much you feel like it at the moment.

So, I pay them. But not with small denominations of U.S. Treasury notes. Nope, not with Uncle Sam’s money. I pay them with my money. You see, that way, I completely control the money supply, the exchange rates, and most importantly, the rate of inflation.

They mow the yard? I pay them a predetermined amount of Funny Money [(I’m very generous with the pay scale) -Ed.]. Do the laundry… more Funny Money. Ditto for everything I want to encourage them to do, from chores and good grades to homework and going to bed on time.

What if they want to go to the mall? They pay me.[(with Funny Money) -Ed.] Talk on the phone for an hour? Pay me. Go to a sleepover party? Pay Daddyo. Spend the night at the boyfriend’s house? Not in this lifetime, young lady!

If they refuse to take on enough responsibility to earn sufficient Funny Money, they in effect ground themselves because they can’t afford to do the things they want to do when the time comes.

They can exchange their Funny Money for real money, also. As above, at a predetermined rate [(right now I allow them to trade $2fm for $1 U.S. at any time, guaranteed) -Ed.]. Of course, if I were like an unscrupulous Federal Reserve, I could gradually make the Funny Money worth less and less Real Money, and “inflate away” the value of their efforts. But I don’t.

Anyway, we had a great time this weekend, and I got to try out my latest mondo lens (77mm front element, yum) taking pictures of them playing in the rain this afternoon. (Don’t tell the teenage friends, that might not seem cool). As I was transferring the pics onto the computer, we looked back through some earlier shots and I saw this one I took of the middle daughter a few months back (she’s 13, don’t get any ideas):

Her comment? “Argh, I look fat!”

…. teenagers!

On July 26 I wrote the following:

I think stocks are being sold, bonds are being bought and yields are dropping precipitously in anticipation of something we “average” people don’t see yet; some economic news which eliminates any possibility of the Fed raising interest rates (not that there is such a possibility right now anyway), and in fact points to the possibility of lowered rates. That would only happen as a way to increase liquidity in the face of some severe, “unexpected” developments.

Now we have the story that the illustrious James Cramer is pleading for a Fed “rescue”.

I’ve written repeatedly over the last couple of years about how our economy’s best hope was for growth strong enough that the Fed could comfortably raise interest rates back to, or even better, above historical norms in order to contain that growth and its accompanying inflation. A strengthening dollar which would give China room to revalue its yuan without crashing our economy or bond market. I felt, and feel even more so now, that such strong growth lies somewhere between highly unlikely and impossible.

I wrote that the alternative (tepid growth in spite of low interest rates- and mortgages still under 7%!- and in spite of an extremely weak dollar) would paint the Fed into a corner and leave them with no wiggle room to do anything but start lowering rates back towards zero to try and re-stimulate our irresponsible debt- and- spend binge, the cycle which has gotten us to this point in the first place. Lowering from here (the lofty 5.25% level!) would cause the dollar to go into a spiral. The Chinese and Japanese would have to buy massive quantities of U.S. Treasuries to try to keep their currencies cheap relative to ours. I believe the current figure is that China is now up to about 1.3 trillion dollars worth of… us. At what level do we start referring to them as “lord”? When their ownership exceeds our GDP (about 10 trillion right now)?

The hangover we’re just beginning to feel is a very intense one, built up starting with the Greenspan-Bush delay of the 2002 “recession- which- wasn’t” by flooding the economy with unprecedented liquidity, resulting in the explosive increase in prices (stocks, homes, etc) we’ve subsequently seen. Milton Friedman would be proud. Not.

It’s not unlike drinking a fifth of whiskey to avert the pain we brought on by sucking down a 12-pack yesterday. We have not averted the pain, we have simply delayed it… to be paid later, with interest. And what Cramer is calling for is the equivalent of yelling, “Bartender!“. The problem has developed over years, and will resolve over years. It’s why I laugh when I hear silliness like, “Do you think the housing slowdown is over?”… it’s not a slowdown, it’s a drastic reversion to the mean, and at best, we’re at the “end of the beginning,” with the fun part yet to come. This stuff takes time.

Let’s hope the Fed does not “rescue” the billionaire parasites until their bleeding begins to threaten the entire economy (admittedly, that won’t take too long). For the long-term good, let’s fess up, take a couple of aspirin, and get ready for our hangover.

From my post Dollar at Inflection Point two weeks ago:

And now from Thanksgiving day:

The dollar is trying to break down. Why? Here’s a quote from the Bloomberg article Dollar Declines to 19-Month Low:

People’s Bank of China Vice-Governor Wu Xiaoling said East Asia needs to reduce its reliance on dollar inflows because of the risk of a further slump in the currency. China’s foreign- exchange reserves exceed $1 trillion, the world’s largest.

Wu’s comments were released today in an article circulated during a press conference in Beijing.

“China holds most of its reserves in the dollar and these comments may lead to speculation they will sell,” said Tohru Sasaki, a strategist in Tokyo at JPMorgan Chase & Co…

Ya’ll know my site is filled with currency rants. I believe the effect of currency values on our economy and the severity of the Real Estate Crisis are the two most understated and under-reported phenomena relating to our finanancial (and even political) futures today.

As the dollar fails thru the top of that right shoulder (on the H&S) and threatens to spiral to multi-year lows, here are a few of my recent mumblings on the subject:

The most recent was the above post from only two weeks ago.

Back on October 29 I wrote this post as the yuan hit another new high.

And then from September here is the article where I tried to show, at least to my understanding, how China and Japan have been manipulating their (and in turn, our) currencies for some years now.

The treasury yield curve inverted last night for the first time in five years. I’ll get a little more into the mechanics of it in a separate article, but put simply, the 2-year note was paying a higher yield than the 10-year note. Think about it for a moment. What if your bank offered you 5.25% on a 5-year CD, but only 5% on a 10-year CD. It would be pretty obvious that something was amiss.

Treasury yields aren’t quite as simple as CD yields, but the inversion is still a sign that something’s not as it should be. It’s the free market’s bright red arrow pointing to the fact that our economy is not just the foaming good news we see on the box.

If you follow market news regularly, you’ll quickly notice that there seems to be no such thing as bad news. Take the following Reuters article, for example.

NEW YORK (Reuters) - An inverted yield curve in the U.S. Treasury bond market, historically a harbinger of looming recession, is no longer the curse that analysts fear and some say its impact on the dollar could even be positive. [my emphasis]

What was bad is good, and what was good is still good! As the Church Lady used to say, “How conveeenient!”

All baloney, of course. The culmination of excess money supply, historic levels of personal debt, and the real estate bubble is likely to be very painful, and for those who keep clicking their heels and ignoring the flashing signals, quite a rude awakening.